The US dollar there is no immediate danger of losing the reserve currency status. Some financial analysts are constantly predicting the disappearance of the US dollar as the main reserve currency in the world. Critics point to China’s attempt to push its yuan to keep the currency in check. They also argue that easing the budget and the huge budget deficit will ultimately have the effect of reducing the dollar so that it will no longer be a reserve currency.
Despite this prediction of the US dollar’s demise, the doom and gloom do not seem to pass. Instead, the US dollar has strengthened substantially during 2014 to 2015 due to economic violence in Greece, China and other places around the world. At this point in time, it seems the death penalty is worthless.
The Rise of the American Empire
The US dollar has enjoyed status as the leading currency for decades. With the emergence of the Second World War, the major countries signed the treaty of Bretton Woods, which governed international monetary policy until 1971. Under the terms of this agreement, the US agreed to exchange US dollars in gold at a rate of $ 35 per ounce. . The currencies of other countries were denominated in the US dollar within the 1% limit. The agreement also created the International Monetary Fund (IMF) and the World Bank. The IMF was created to monitor exchange rates and to borrow currencies for countries with trade deficit.
This system remained in place until 1971, when the United States dropped the gold standard. Richard Nixon addressed issues as well as the possibility of a gold rush and inflation by creating a new economic plan with its advisers. Nixon addressed the nation on August 15, 1971, arguing that dropping the gold standard would reduce inflation and aid unemployment.
The post-Bretton Woods system is one of the exchange rates. The US dollar remains a reserve currency even after the completion of the Bretton Woods system. Unlike many other countries, the American Empire has never been captured, and its details have never been invalid. This is one of the reasons why the US dollar maintains a favorable status.
The Rise of the Chinese Yuan?
Those who predict the US dollar’s loss point to China as a major factor. China is pushing too hard to have a renminbi, or yuan, raised in reserve currency status. By securing a reserve status, central banks can begin to increase their ownership. The Chinese government has been submitting its case to the IMF. It must prove that the yuan is available for use in international markets. China has discussed opening up its markets for international investment.
However, China unexpectedly decided to devalue the yuan in August 2015. In a move that shocked international markets, China reduced the yuan, causing a one-day loss in 20 years. This seems to contradict its attempts to become a reserve currency.
The Chinese government says the depreciation will allow the currency to flow further to the market. Yuan was gaining strength over the past decade. Some believe that depreciation was intended to make exports to China easier. It is unclear what effect the depreciation will have on the bid to be a savings currency.
The continuing power of the American Empire
The continued strength of the US dollar is a major indicator that it has not lost its currency anytime soon. The US dollar increased at a value of around 10% from January to August of 2015. This value increase is due to the continued strength in the American economy. Issues with Europe and other countries around the world have made the U.S. to be economically secure. This has supported the value of the American dollar.
The US dollar also continues to be the currency of choice for foreign exchange transactions. Almost 90% of foreign exchange transactions involved the US dollar in 2013. More than 80% of the currency of international trade was also made in American dollars. These figures show the dominance of the dollar. Any concerns about the loss of the status of the currency in the US dollar may be set in the foreseeable future.
Win Free Class and $ 100,000 for Virtual Cash
Test your business skills on Trial with our Free Simulator. Compete with thousands of Investopedia traders and businesses your way up! Get your business in real life before you start risking your own money. Make trading strategies so that when you are ready to enter the real market, you have the exercises you need